Vicor Corporation (VICR) — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Unaudited results cover Vicor’s power-conversion products and systems businesses, reported across BBU, VI Chip and Picor segments.
Financial performance and liquidity
| Metric | Q2 2015 | Six months 2015 |
|---|---|---|
| Revenue | $56.1 million; +5.2% year over year and -12.3% sequentially | $120.1 million; +12.7% year over year |
| Gross margin | $26.5 million; 47.2% of revenue, versus 42.5% in Q2 2014 | $55.4 million; 46.1%, versus 42.6% in 2014 |
| Operating income (loss) | $0.8 million, versus a $5.0 million loss | $4.4 million, versus a $10.5 million loss |
| Net income (loss) attributable to Vicor | $0.8 million, or $0.02 per diluted share, versus a $4.8 million loss, or $0.13 per share | $4.2 million, or $0.11 per diluted share, versus a $10.2 million loss, or $0.26 per share |
| Operating cash flow | Not separately provided for the quarter | $12.3 million, versus cash used of $2.2 million in 2014 |
- Cash and cash equivalents were $65.1 million at June 30, up from $55.2 million at year-end 2014. Working capital was $97.5 million and the current ratio was 5.1:1.
- Six-month capital expenditures were $3.3 million; capital expenditure commitments were approximately $1.0 million. Cash rose by $10.0 million during the half.
- Total liabilities were $25.3 million, primarily current operating liabilities and deferred revenue. No borrowings are listed in the balance sheet presented in the filing.
- Inventory was $25.5 million, down 3.3% from December 31, 2014. The company reported no share repurchases during the half.
Changes, outlook and material matters
- Year-over-year revenue growth for Q2 came from VI Chip and Picor, while BBU revenue declined. For the first half, VI Chip and Picor growth more than offset a modest BBU decline. Management attributed growth primarily to bookings from a major datacenter customer.
- Q2 bookings fell 16.5% year over year and 19.2% sequentially. Backlog scheduled for shipment within 12 months fell to $41.6 million from $49.8 million at the end of Q1. Management said bookings remained unpredictable and the near-term outlook uncertain.
- Management cited datacenter voltage-regulation standard changes as delaying bookings and shifting revenue timing; weakness in defense electronics and certain geographic markets; and exposure to demand swings from a small number of early-adopting, high-volume customers.
- Gross-margin improvement reflected product mix, higher-margin Picor products and, sequentially, average selling-price improvement in BBU programs and benefits from consolidating Westcor manufacturing in Andover. Lower SG&A chiefly reflected reduced SynQor litigation legal fees; litigation costs and outcome remain uncertain.
- Management said cash and expected operating cash flows should fund planned operations and capital equipment purchases for the foreseeable future. The filing provides no specific revenue or earnings guidance.
- The SynQor patent case remained pending. Vicor disputed infringement and said it did not consider a loss probable, but could not estimate a possible loss range. Patent-review proceedings had mixed developments; trial-related proceedings were scheduled for 2015 and 2016.
- A failed-auction student-loan security was carried as a long-term investment at $2.6 million, against $3.0 million par and cost, including a $386,000 unrealized loss. It is valued using Level 3 assumptions; management warned further market deterioration or a credit-rating decline could cause additional losses or impairment.
- Vicor maintained a full valuation allowance against remaining domestic deferred tax assets, approximately $25.8 million. An Italian tax inspection was unresolved, though management did not expect a material impact. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Investor verification priorities
- Track bookings, backlog, major-customer concentration and the effect of the datacenter voltage-regulation transition on shipments and revenue.
- Monitor whether gross-margin gains and lower legal expenses persist, particularly as SynQor litigation progresses.
- Review the failed-auction security’s valuation assumptions, liquidity and impairment exposure.
- Follow the SynQor case and patent-review outcomes, including any change in Vicor’s assessment of potential loss.
- Assess cash generation and planned capital spending against management’s liquidity expectations, and monitor the Italian tax matter and deferred-tax valuation allowance.